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The age of alignment.

The Age Of Alignment

The 1980s was an age of turmoil - of tearing companies apart. The 1990s will be an age of alignment - of putting companies back together again. Only this time, to compete in the tempest of accelerating change, organizations must be aligned as never before in terms of shareholder expectations, company strategy, and management and employee performance. The following article discusses the alignment imperative and the Chairman's crucial role in implementing it. It is a collaborative work of four authors drawing on their individual expertise in the areas of organizational design, business integration methodologies, managing strategic transformation, and human resources management. They are: Lance Berger, Managing Director of MLR Publishing Co. (which publishes Directors & Boards), who formerly was a Vice President and Managing Director of The Hay Group; Francis J. Gouillart and William C. King, both of whom are Senior Vice Presidents of Gemini Consulting; and Michael Useem, Professor of Sociology and Management at the University of Pennsylvania.

As business historians look back on the 1980s, the era is likely to be seen as one of those fateful periods when American business underwent fundamental restructuring. Earlier periods of restructuring carried distinctive casts. Large multidivisional firms emerged from the business turbulence near the turn of the century; diversified multinational firms emerged during the postwar era. A still different cast characterized the tumult of the past decade. The precise form of the emergent corporate form is yet uncertain. What is certain is that new principles of organizational design of management process are in the offing.

The turbulence from which the new corporate forms of the 1990s are emerging is evident in almost any measure of the era. Consider just four: * Public Companies Privatized. At the start of the decade, only 4% of the dollar value of public-firm mergers and acquisitions involved buyouts; by 1988, the proportion had increased nearly tenfold. The purchase value of divisions and companies taken private during the decade exceeded $ 200 billion. * Corporate Employment Declined. Reversing a historic trend, employment among major manufacturers sharply declined. While total manufacturing employment rolls were off little during the decade, employment among the Fortune 500 declined by more than one-fifth, from 15.9 million to 12.4 million. Employment among many large service firms declined as well. * Institutional Investments Expanded. Pension funds and other institutional investors grew and concentrated their holdings. Institutions held 29% of the value of all company equities in 1980; by the decade's end they held 46%. Among some major firms, their stakes had reached 60% or more. Impatient with management's value-building strategies, but constrained in trading their large holdings, several large public pension funds pressed instead for changes in corporate governance. Other institutional investors quietly threw their weight behind a wave of shareholder proposals and proxy fights. * Mergers and Acquisitions. In the past 10 years, over 35,000 mergers and acquisitions were completed in the United States. These transactions resulted in the massive restructuring of companies, reconfiguration of industries, and displacement of millions of employees. By 1990, 22 of the top 100 companies listed in Fortune's 1979 edition no longer existed as public entities. Regardless of whether the basis of these transactions was strategic or financial, the postmerger integration efforts even in the best of the mergers led to widespread business turmoil - turmoil exacerbated by the unrelenting pressures of global competition, quest for market share, technology advancement, and uneven economic growth.

Performance vs. expectations

Perhaps the most profound result of these massive and fundamental structural changes was the growing inconsistency between actual company performance and the expectations of stakeholders, who have now become more than passive observers to these changes. Given the results of the major internal company restructurings that have occurred in the past 10 years, and their lack of congruity with stakeholder expectations, it is not surprising to find that media themes now focus on the "sound management" of companies rather than the "commoditization" of them - companies bought and sold like pork bellies in a manic auction market.

The leading edge of the turbulence shifted at the start of the '90s, with acquisitions and leveraged buyouts down sharply and institutional activism through shareholder proposals and proxy challenges up sharply. Unlike the past, however, a new kind of "progress" is now required to create a more enduring form of organizational change. It will be focused on two key elements.

First, the change has to be systemic. This means that the basic building blocks of an organization - its decisionmaking procedures, operating methods, information technologies, prevailing cultures, and human resources systems - have to be changed or realigned together. Altering one without the others is too often equivalent to negative change or no change at all. Simultaneous change in all elements, even modest and incremental, is needed to create the self-reinforcement necessary for permanent change.

Second, the change has to be oriented around bringing the building blocks into consistent support of central objectives.

Insufficient understanding

Despite a growing awareness of these requirements, company misalignment frequently developed, and continues to develop, from an insufficient understanding of what the real nature of alignment is and what its underlying measurement processes should be.

The major reason why misalignment occurs is that too few employees are able to identify with company goals because too few can identify what they are. Simultaneously, when new management objectives - such as international competitiveness and shareholder value - displace traditional goals, the organization cannot achieve these new company goals because it has not been designed to do so.

Traditionally, management's response to corporate restructuring forces has been fragmented and unconnected, with a loss of overall effectiveness. In addition, traditional management and consulting practices have not evolved into this stage of systemic alignment because of a lack of a top-management conceptional framework, practitioner skill, and underdeveloped management techniques. How then will the modern company realign to ensure its growth and survival?

Three critical implications can be derived from the convergence of the events described above which can help point to the solution:

(1) There is a strong need for an alignment of existing business activities (strategy, operations, culture, reward systems, shareholder relations) to digest the turmoil of the '80s.

(2) A better process will be required to assimilate new business opportunities.

(3) The Chairman's role will have to change, with new premiums placed on critical skills in business integration/alignment.

None of these trends is startling. What is different will be the emphasis placed on company management to finally respond on a "holistic" level to these complex needs.

To holistically address these complex needs we must begin by recognizing that the age of turbulence has ushered in a new era - an era in which changes in the competitive environment, like technological innovation, are occuring at a frequency that will require a level of adaptiveness unmatched in any previous era. Recognition of this need, and the frustration associated with not being able to deal with it, has spawned a new set of ambiguous concepts, given labels like change management, seamless organization, and corporate reengineering. These rubrics were intended to characterize the need to manage shifts in company behavior in response to competitive threat, but they offer little help in handling the issues appropriately.

The reality of the need to grow in the accelerated competitive environment of the '90s, however, demands organizational alignment. A recent Columbia University/Korn Ferry International study suggests that corporate growth will be based on the ability to digest, and make effective, the acquisitions of the '80s; to acquire and assimilate new businesses in familiar markets and product lines; and to recognize that front-end changes in strategy will require rear-end changes in operations, culture, measurement, and reward systems. This is the process of alignment.

Alignment is far more concrete than reengineering, |right sizing,' downsizing, change management, and seamless organizing. Alignment requires a different set of executive skills and delivery systems.

The Chairman's position is the only job capable of fully aligning shareholder expectations, company strategy, and management and employee performance. We, therefore, label the Chairman as the Chief Alignment Officer of the '90s and conceptually describe a philosophy and skill set for Chairmen appropriate to move a company from the age of turmoil to the age of alignment.

Frequently, when an organization does not adequately fulfill its promise, people ask why. The reason is that each of the pieces may have been individually designed, and each works on an individual basis but does not succeed in working together as a whole. Harvard professor John Kotter, a specialist in leadership studies, expressed the notion that alignment leads to empowerment because it communicates a clear sense of purpose throughout the organization, such that even lower-level employees can initiate action with high levels of security. That clear sense of purpose also provides comfort to shareholders.

Stages of management

Business historian Alfred D. Chandler describes the evolution of management in the past 100 years in three stages. These stages might be conceptualized as shown in Table 1, with our projection of what the fourth era in the '90s might be like. In each of the first three eras, corporations have most frequently adapted to change in a fragmented rather than holistic way.

Table 1: The Evolution of

 Management Management
Time Era Type Style
1890 Growth Entrepreneur/ Initiator
1950 Development Engineer Aggregator
1980 Turmoil Financier Predator
1990 Alignment Generalist Integrator

What will be required in order to achieve successful alignment in this new era? There are four mandates:

(1) Creation of an alignment blueprint to describe the full set of major strategic business requirements and their linkages.

(2) An assessment (diagnostic) of the organization's readiness - in strategy, operations, culture, reward systems - to respond to blueprint requirements.

(3) The willingness of the Chairman to go beyond the role of visionary and communicator to ensure that the alignment process is fully implemented.

(4) The selection of an executive staff capable of "genetically" carrying forth the intent of the Chairman through a more detailed blueprinting process implemented through their own staff and units.

In this model, each senior staff member acts like a "surrogate CEO" carrying, like DNA, the alignment blueprint throughout his/her domain. This blueprinting process is replicated down to the lowest levels, thereby empowering the entire organization.

Each time economic or market conditions cause a change in the company's strategy, the Chairman would initiate the blueprinting and readiness diagnostic and drive the organization response program. In this way expectations and reality will be continually matched.

There are two types of alignment that the Chairman must manage: stakeholder (vertical) and organizational (horizontal). See Tables 2 and 3.

Table 2: Stakeholder Alignment

Table : Table 3: Organizational Alignment
 Strategy Operations Culture
* Mission * Structure and processes * Values
* Core competencies to: buy, make, market/sell, * Expectations
* Market positioning distribute * Behavior
 * Skills
 Reward Systems

In each instance the Chairman must anticipate and respond to economic and competitive changes through horizontal and vertical alignment. Alignment thus requires a high level of analytical, communication, and implementation skills.

Once the difference between blueprint and organization readiness is determined, and the actions required to reach alignment are established, the Chairman can easily communicate the program to stakeholders, thereby aligning their expectations of change with his own. The Chairman must keep the organization constantly mobilized in a continual process of competitive anticipation, readiness assessment, and adaptation to change, rather than waiting for crisis to occur.

All across Corporate America, Chairmen are trying to implement change in the absence of any type of alignment notion. Senior management staff further exacerbate the problem by creating their own de facto plan, which may also be unattainable. The overall result is failure to establish a consistent long-term approach to meeting goals. No wonder we have disdainful shareholders and disaffected employees.

The great test of reality for the Chairman may be his or her capacity to modify long-term progress goals based on the time necessary to reach alignment and to communicate adjustments to stakeholders. Only then will we find that businesses will reach the exalted promise that their mission and corporate growth can be sustained into the 21st Century.
COPYRIGHT 1991 Directors and Boards
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Chairman's Agenda: Being a Global Leader; the role of the corporate chairman in creating organizational adaptiveness; includes related article
Author:Berger, Lance; Gouillart, Francis J.; King, William C.; Useem, Michael; Georges, John A.
Publication:Directors & Boards
Date:Sep 22, 1991
Previous Article:Will America compete?
Next Article:Relationships based on respect.

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